Success in emerging markets hinges on broad network

Sanofi's March 29 announcement that it was pouring $75 million into a Saigon manufacturing plant is the latest example of large pharmas building out their operations in emerging markets. Overlaid with a recent study by Booz & Co, it is also a signal about what's necessary to convert emerging markets from potential revenue sources into financially-sustaining markets.

Hint: it requires more than just a local storefront and sales force.

Booz & Co. interviewed execs from more than 25 brand and generics companies for the survey. They cited Sanofi as an emerging-markets sales leader and Novartis as a smart investor in local clinical trials. They also said success in this geographically disparate area depends on ignoring what has worked in mature markets and approaching rising markets on their own terms. In addition, they told Booz & Co. that industry needs to exercise patience and really commit to regions if they expect results. Researchers said “dipping in and out of such markets is a recipe for failure,” and “local governments will be unforgiving” of lackluster partners.

Understanding these markets is more than just desirable—52% of those Booz interviewed said they expect emerging markets to account for more than 30% of sales within five years. And these markets are also subject to the patent clock, making footholds and strong relationships critical.

What this means commercially depends on where the industry is looking, be it BRICMT (Brazil, Russia, India, China, Mexico, Turkey), Second Tier (former Soviet Bloc, Southeast Asia) or Africa. Booz boiled down the key levers into three categories: local operations (meaning research and manufacturing), local sales forces and government collaboration. For BRICMT countries, emphasizing local research and development is key, and Booz noted that the industry has already invested in this, citing as an example the transfer of BMS' HIV drug Reyataz to a local manufacturer. Executives were less aligned on the need for local R&D in second-tier markets. Many told Booz cracking the second tier depends more on government relationships, through efforts like public-private initiatives and collaboration with local distributors, than it does on creating their own local R&D and manufacturing businesses.

The term "emerging markets" is somewhat misleading, because drug makers aren't pioneers venturing into loose marketplaces. Instead, these markets have already adopted, or are in the process of creating, payment infrastructures which may offer access to large populations, but with limited pricing latitude. For example, Booz expects Vietnam's recent price caps will lower drug prices by around 30% (patients cover around 60% of costs out of pocket).

According to Booz's metrics, the leaders in the bespoke emerging market approach are Sanofi and Novartis. Booz said Sanofi leads in emerging market sales, and Novartis' go-local investment includes transferring two-thirds of its global clinical trials to emerging markets.

The African market's considerations are unique for a number of reasons, including the types of drugs that are expected to lead. In contrast to the BRIMCT and Second Tier economies, which are expected to see growth in "lifestyle" conditions like diabetes and cancer, in many African markets, communicable diseases like AIDS, together with maternal conditions and nutrition, account for two-thirds of the immediate health needs. Researchers said a lack of health infrastructure and economic conditions make relationships with NGOs and local distributors crucial.